Originally published Sunday, October 5, 2008 at 12:00 AM
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What you need to know about paying for college
How parents can save for college Guaranteed Education Tuition (GET) Under this state plan, parents prepay a child's tuition. The basic idea is...
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How parents can save for college
Guaranteed Education Tuition (GET)
Under this state plan, parents prepay a child's tuition. The basic idea is that you buy a year's worth of tuition now and cash it in when your child starts college. The state guarantees that a year's worth of tuition units bought now will buy a year of undergraduate tuition at the most expensive public university in Washington state when your child attends college in the future.
PROS: If tuition at the University of Washington keeps rising at its current annual rate of 7 percent, while overall inflation remains less, parents will be better off paying tuition now. GET can be used at almost any accredited U.S. college and selected colleges in other countries. After-tax money put into GET grows tax-free, as long as it's used for education.
CONS: You pay a slight premium over the current actual cost of tuition, so it generally takes two or three years for the investment to pay off. Currently, units cost $76 but are worth $67.20. Also, if you decide to use your investment for something other than college, in most cases you lose the tax benefits and incur penalties.
For more information, go to: www.get.wa.gov
Self-directed 529 college-savings plans
These are similar to 401(k) plans, except they are for education rather than retirement. You can direct deposit a certain amount each month — whether $50 or $500 — and your after-tax money grows tax free, as long as it's used for education. Although Washington doesn't sponsor one of these plans, residents can participate in a plan sponsored by another state.
PROS: The accounts are professionally managed. Investments are aggressive when the child is younger and more conservative when the child nears college age.
CONS: Because the plans are managed by individual states, each has a different set of rules and fees, which can be confusing. It pays to shop around. You generally lose the tax benefits and incur fees if you use the money for anything other than education.
For more information, go to: www.finaid.org
Coverdell Education
Savings Account
Previously known as Education IRAs, these plans allow parents to deposit money into an account in the student's name. The after-tax money then grows tax free.
PROS: More flexibility in investment than allowed in 529 plans. Money can be used for elementary and secondary school, as well as for higher education.
CONS: A big drawback is that the maximum investment is $2,000 per year, less than the amount many parents will need or want to save. Plans must be used by the time a child reaches age 30. Plans are not available to couples who earn more than $220,000 per year or single taxpayers who earn more than $110,000.
For more information, go to:
www.irs.gov/pub/irs-pdf/p970.pdf">www.irs.gov/pub/irs-pdf/p970.pdf
Sources: www.finaid.org; www.irs.gov; www.get.wa.gov; Seattle Times archives;
Seattle Times interviews.
Scholarships
Scholarships — and fellowships for graduate students — can substantially reduce the cost of college. Tens of thousands of scholarships are available nationwide, from sports to academics and much more.
Parents need to start thinking about scholarship options early. For instance, the Washington College Bound Scholarship — which covers the cost of tuition, fees and books — is available to low-income students who sign a pledge in the seventh or eighth grade promising to graduate from high school and to demonstrate good citizenship.
There are many quirky and little-known opportunities out there. Take, for instance, "The Car of MY Future" scholarship. The Washington State Auto Dealers Association each year offers five scholarships worth a total $10,000 for students who write the best two-page essay, with artwork, on what their personal car of the future might look like.
It pays to check scholarship opportunities with high-school and college counselors, local community organizations, and through free online searches. Avoid companies that want you to pay for a scholarship search.
Some good free online sites include: www.collegeplan.org; www.fastweb.com; www.collegeboard.com.
Source: www.hecb.wa.gov; Seattle Times archives
Financial aid and loans
College counselors advise that every student should apply for financial aid, even those who think they won't qualify. After all, the application process is free, and you avoid leaving money on the table.
This year, the dreaded FAFSA (Free Application for Federal Student Aid) has been simplified from seven pages to two (EZ-FAFSA) thanks to amendments to the Higher Education Act. Filling out the FAFSA is the first step toward getting federal and state aid.
Parents can use strategies to maximize their eligibility for need-based financial aid — for instance, by paying down credit-card debt or making major purchases such as a new car before a child starts college. Parents need to remain ethical and honest if going down this path, and should probably consult with a financial planner.
Federal grant and loan limits have been raised this year, while interest rates have been cut. Counselors recommend that students thinking about borrowing should first exhaust options for federal loans — which generally offer better interest rates, tax benefits, and chances for deferment or forgiveness — before turning to private loans.
Sources: Seattle Times interviews, www.studentaid.ed.gov
Loan forgiveness
Students who choose to work in certain public-service or high-need areas can get federal loans partially or completely forgiven. The federal government this year significantly expanded its loan-forgiveness program when it amended the Higher Education Act.
Among the changes:
×Public defenders and state or local prosecutors who remain employed for at least three years can get their loans repaid at the rate of up to $10,000 per year, to a maximum of $60,000.
×Borrowers in other areas of "national need" can get more limited loan reductions. Those include early-childhood educators, nurses, foreign-language specialists, librarians, "highly qualified" teachers, child-welfare workers, speech-language pathologists and audiologists, national-service participants, school counselors, public-sector employees, nutrition professionals, medical specialists, mental-health professionals, physical therapists and dentists. Also on the list are school superintendents, principals or other administrators; and individuals employed in engineering, technology, applied sciences or mathematics.
Others who may receive loan reduction or forgiveness:
×Teachers who work at an elementary or secondary school that serves low-income students. They are forgiven 15 percent of their federal Perkins loans for the first and second years of teaching service; 20 percent for the third and fourth years; and 30 percent for the fifth.
×Volunteers in the Peace Corps, AmeriCorps, and Volunteers in Service to America (VISTA) can be eligible for certain loan-forgiveness programs.
×Students who are in the Army National Guard may be eligible for up to $10,000 through a student-loan-repayment program.
×The National Institutes of Health's loan-repayment program can repay up to $35,000 per year of student-loan debt for U.S. citizens conducting clinical medical research.
×Anyone considered a public-service employee — including those who work for the government, the military, law enforcement, libraries, public child care or certain nonprofits — is eligible for loan forgiveness after making 10 years of payments.
Sources: www.finaid.org; www.studentaid.ed.gov
— Nick Perry /
Seattle Times higher education reporter
Copyright © 2008 The Seattle Times Company
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